HMRC Tax Investigations

12 February 2019

Are you at risk from a tax investigation?  HMRC is better equipped at spotting potential anomalies and non-compliance with its powerful data analysis system ‘Connect’ which can cross-reference tax payers information against other government agencies e.g. DVLA, and other trading websites.

Also, the Government’s Making Tax Digital (MTD) programme is partly motivated  by the need to make businesses’ accounts more transparent and geared towards spotting any variances or evidence of non-compliance.

Tip-offs from disgruntled employees, relatives or neighbours are also key information sources.  HMRC’s tax fraud hotline received 40,000 calls in 2017/18.

Making Tax Digital

MTD will require businesses to use software rather than manual means of doing accounts.  The Exchequer estimates that £9 billion is lost in tax revenue each year through tax payer errors and non-compliance.  MTD is expected to help in recovery of this lost revenue as digital records of businesses’ accounts should be more accurate as well as more effective and efficient.

The first stage of MTD rolls out on 1 April 2019 covering VAT, requiring all VAT registered businesses with a turnover of £85,000 or more to register and submit their quarterly returns digitally to HMRC. There are already businesses and agents digitally reporting to HMRC as part of a live pilot to test MTD for Income Tax.

What can trigger a tax investigation?

There are no concrete figures on the likelihood of a tax investigation as HMRC would not be keen for taxpayers to know such details.  They rely on the fear of being caught.  However, there are certain red flags:

• High variation in turnover/profit from year to year
• Consistently paying too little tax
• A substantial profitable business doing its own accounts rather than using an accountant can raise suspicions
• Anything out of step with the norm for your business sector or region

Costs of a Tax Investigation

The length of a tax investigation can often rumble on for over a year or more which is time-consuming and stressful even if your tax returns are found to be complete and accurate.  Addressing each of the queries from the inspector takes time and effort and you will often require the expertise of your accountant which costs money.

Daly Park offers clients a tax investigation service for a relatively small annual fee which will cover the accountant’s costs in assisting in the event of a tax investigation.  This gives our clients peace of mind and some control over the cost of a tax investigation.  Please contact Roisin at our Newry office if you want more information about Daly Park’s tax investigation service.

To read more click on The Risks of a Tax Investigation.